AI
Big Tech’s AI spending plans have big implications for Nvidia, Broadcom and Eaton
A busy week for big tech earnings gave us more confidence in our investments in Nvidia, Broadcom, and Eaton, as spending on artificial intelligence chips and data centers remains a clear priority. This week’s quarterly reports from Alphabet, Microsoft, Metaplatforms, and Amazon were mixed in overall quality, but the common thread woven through them all was a strong focus on large-scale investments in AI. It was an ongoing effort. More importantly, all four companies showed that investment momentum is gaining momentum, as reflected in their outlook for capital expenditures or capital expenditures. Capital expenditures are money spent on purchasing or upgrading physical assets, such as building a data center building and the computer hardware within it. Nvidia, Broadcom, and Eaton are poised to benefit from this continued spending. Nvidia is the dominant manufacturer of AI chips. Broadcom acts as Alphabet’s partner on the Google parent company’s proprietary AI chips and more broadly as a provider of data center networking technology. Eaton is a supplier of electrical components and power systems used to operate data centers. Of the three companies, Nvidia is the biggest winner, given how much of its overall revenue is tied to AI initiatives, followed by more diverse efforts from Broadcom and Eaton. Nevertheless, Broadcom and Eaton’s exposure to the rapidly growing AI market is part of our investment case for both companies. Meanwhile, Eaton’s earnings report on Thursday morning reinforced our case, offering his optimistic 2024 outlook, including strength in the data center business. Nvidia is scheduled to report its quarterly results on February 21st, and Broadcom is expected to report shortly thereafter. Big Tech Spending AMZN 1Y Amazon stock performance over the past 12 months. Amazon’s capital spending is expected to increase year over year in 2024, CFO Brian Olsavsky said Thursday. A key driver of the rise will be infrastructure investments to fuel growth at cloud computing arm Amazon Web Services (AWS), including work on generative AI and large-scale language models, the CFO said. Amazon’s stunning quarter announced Thursday night had pushed its stock up 8% on Friday, according to estimates compiled by FactSet, although the company did not provide specific capital spending guidance for 2024. Analysts say they are modeling about $60 billion. In fact, Amazon’s capital spending fell about 17% year over year to $48.4 billion in 2023 as the company cut spending on its e-commerce logistics network. Some of Amazon’s spending will likely go toward custom AI chips known as Trainium and Inferentia. But the Seattle-based tech giant is also buying Nvidia chips. During Thursday’s post-earnings conference call, CEO Andy Jassy said AWS offers “the broadest collection of compute instances powered by Nvidia chips.” In November, the two companies announced an expanded partnership to bring Nvidia’s supercomputer service DGX Cloud to AWS. META 1Y Mountain Meta Platforms stock performance over the past 12 months. Meta Platforms raised the upper end of its full-year capital spending forecast to $37 billion from $35 billion, as the stock rose more than 20% on Friday after Knockout’s earnings report released late Thursday. The company, the parent company of Instagram and Facebook, kept the lower end of its guidance unchanged at $30 billion. Meta’s capital expenditures totaled $27.3 billion in 2023, down from $31.4 billion a year earlier. The expected growth in 2024 will be driven by spending on servers (both AI-specific servers, including AI chips like Nvidia’s, and servers for more general computing) and the needs of AI workloads. It’s about building data centers that are designed to handle things better, said CFO Susan Lee. Earnings calls. “While we are not providing guidance beyond 2024, we expect our ambitious long-term AI research and product development efforts will require increased infrastructure investment beyond this year,” Lee said. said. CEO Mark Zuckerberg has reiterated that Meta plans to have 350,000 of Nvidia’s top-of-the-line AI chips, known as H100, by the end of the year. Considering other processors, Meta’s AI-focused computing infrastructure is roughly equivalent to his H100, Zuckerberg said, at 600,000 units. Meta said it is also ordering a new AI chip, the MI300X, from Advanced Micro Devices that was launched late last year as an Nvidia replacement. The social media giant also has plans to use custom chips for certain AI tasks. MSFT 1Y Mountain Microsoft’s stock price performance over the past 12 months. Late Tuesday, Microsoft, which is one of its biggest recent Nvidia chip purchasers, said its current quarter’s capital spending was “significantly lower” compared to his three months ended Dec. 31. “We expect it to increase,” he said. , the company spent $9.7 billion on property, plant and equipment. Wall Street expects total sales for the quarter to be $11.64 billion, according to estimates compiled by FactSet. “These data center investments support our cloud needs, including our AI infrastructure expansion needs,” CFO Amy Hood said on the conference call. Microsoft’s past spending has already led to financial benefits. The company’s cloud computing division Azure grew 30% on an annual basis in the second quarter of the fiscal year, with AI services in particular contributing 6 points of growth. In fact, Azure’s growth rate exceeded that of AWS and Google Cloud for the second consecutive quarter. This is Microsoft’s new leadership in AI, rooted in its close partnership with startup OpenAI, whose AI chatbot ChatGPT went viral in November 2022, sparking an ongoing wave of generative AI investments. further evidence of its status. Microsoft has also ordered AMD’s MI300X. GOOGL 1Y Mountain Stock performance of Alphabet, Google’s parent company, over the past 12 months. Alphabet expects capital spending in 2024 to be “significantly higher” than in 2023, when it totaled $32.5 billion, Finance Director Ruth Porat said on an earnings call Tuesday night. Alphabet did not provide specific numbers, but analysts currently expect full-year capital spending to be about $41 billion, representing 26% year-over-year growth, according to FactSet. . Porat said the company’s capital spending in the fourth quarter rose 37% from the previous quarter to $11 billion, driven primarily by spending on servers, followed by data centers. Alphabet’s spending on AI chips has typically been split between custom chips designed in partnership with Broadcom, known as Tensor Processing Units (TPUs), and products from Nvidia. As such, both Broadcom and Nvidia are poised to benefit from Alphabet’s server spending. Back in August, Alphabet announced its 5th generation TPUs, which the company has been using for internal AI work. At the time, Alphabet also detailed its expanded partnership with Nvidia to bring supercomputing DGX services to Google Cloud. In Broadcom’s entire 2023 fiscal year (figures released along with its fourth-quarter results in December), the company generated about $2.8 billion in revenue from “AI accelerators” (basically the code name for his TPUs). raised. Including networking products that connect parts of data centers, about 15% of Broadcom’s semiconductor revenue in fiscal 2023 is tied to spending on generative AI. The company expects it to increase by more than 25% in the current fiscal year and in 2024. (Jim Cramer’s Charitable) Trust is long NVDA, AVGO, ETN, MSFT, GOOGL, META, AMZN. See here for a complete list of stocks. ) As a subscriber to Jim Cramer’s CNBC Investment Club, you will receive trade alerts before Jim makes a trade. trade. After Jim sends a trade alert, he waits 45 minutes before buying or selling stocks in a charitable trust’s portfolio. If Jim talks about a stock on his CNBC TV, he will wait 72 hours before executing the trade after issuing a trade alert. The above investment club information is subject to our Terms of Use and Privacy Policy, along with our disclaimer. No fiduciary duties or obligations exist or arise from your receipt of information provided in connection with the Investment Club. No specific results or benefits are guaranteed.
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A busy week for Big Tech earnings gives us even more confidence in investing in the following areas: Nvidia, broadcom and Eaton Because spending on artificial intelligence chips and data centers remains a clear priority.
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